Under the current DRG window policy, Medicare does not pay separately for outpatient services delivered within three days of an inpatient admission, related to the upcoming inpatient admission, and delivered in a setting wholly owned or operated by the admitting hospital. Instead, payment for these outpatient services is included in the bundled DRG payment for the inpatient admission. Services provided by hospitals that share a common owner (i.e., affiliated hospitals) are not subject to the DRG window and are thus reimbursed separately from the DRG payment.

Specifically, the OIG’s study found that in 2011, Medicare and beneficiaries paid an estimated $263 million for related outpatient services provided at settings owned by admitting hospitals in the 11 days prior to the DRG window. Of the $263 million, about $180 million was for related non-diagnostic services (e.g., administration of drugs), while the remaining $83 million was for related diagnostic services.

Additionally, Medicare and beneficiaries paid an estimated $45 million for related outpatient services provided at hospitals affiliated with admitting hospitals during the 3 days prior to inpatient admissions. Of the $45 million, an estimated $27 million were for related non-diagnostic services, while the remaining $18 million was for related diagnostic services. Further, Medicare and beneficiaries paid an estimated $10 million for related outpatient services provided at affiliated hospitals during the 11 days prior to the start of the DRG window.

As a result of the findings from the analysis, OIG recommended that CMS: 1) expand the DRG window to include additional days prior to the inpatient admission; and 2) expand the DRG window to include affiliated hospital group arrangements. CMS did not concur with either recommendation, citing that the required legislation for both proposals was not included in the President’s FY 2014 Budget. CMS notes that the first recommendation does not provide a specific number of days for expanding the DRG window.

The OIG’s analysis suggests that the current timeframe for the DRG window policy is arbitrary, since three days is not a medical standard. Expansion of the DRG window to include additional days preceding admission, or to include services provided by affiliated hospitals, would result in significant savings. Additionally, these changes may result in increased patient access to preadmission services for beneficiaries who would otherwise avoid Medicare Part B procedures due to the flat 20 percent coinsurance requirement. However, an expansion of the DRG window would also result in hospital payment cuts, and if implemented, CMS would likely have to recalculate many DRG payment rates to incorporate costs of services that are currently paid separately.

Given that CMS did not concur with either OIG recommendation, changes to the DRG window policy for FY 2015 are unlikely. However, Congress could consider an expansion to the DRG window policy as a potential cost offset for SGR repeal and replacement.

To read the full OIG analysis, click here.